Estes Park News

Park Hospital District board talks about finances, bond covenant

Last year not a good year for hospital revenues

By Juley Harvey

Trail-Gazette

Posted:
05/31/2013 02:16:48 PM MDT

The Park Hospital District, which runs the Estes Park Medical Center (EPMC), which is owned by the district and the taxpayers in the district, may need a budget boost. Sam Radke, vice president of finances at EPMC, gave a bottom-line-budget picture at the hospital district's board of directors' meeting on Tuesday. Wednesday, he further explained hospital financing to the Trail-Gazette.

Against $49 million in expected revenues, he said the board had budgeted a bottom line of $250,000 this year. That represents a .2-percent profit margin, "not even one penny on a dollar," he said. It is a "fine line all year."

Adding to the challenge is that "last year was not a good year for the hospital," Radke said. Revenue was underbudgeted by $1.6 million, which is "driving the whole picture," he said.

Radke explained that the reason the board budgeted such a "small, small bottom line" back in December/January was that the board and hospital management decided to lower the prices in the operating room, to make the hospital as competitive with other facilities in the area as possible. That took $1.8 million off the bottom line, he said. Adjustments were made to remain competitive, reducing the prices across the board by 40 percent, to be as competitive as possible with other hospitals.

EPMC took a "$1.8 million hit, or adjustment, to do that," he said. "The board is committed to be more competitive with pricing. That's a big, big step in the right direction."

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However, as he said at the board meeting Tuesday, in December, the bond covenant will hit. It would be triggered by a threshold loss of $750,000. If the hospital loses less than that amount, say $600,000, in the year, the bond-holders will be okay. If losses reach a higher figure, it will trigger questions by bond-holders and require an action plan from hospital administrators. The bond-holders will want a plan for how to deal with the problem, and Radke said the hospital is already dealing with it, by enlarging revenues or decreasing expenses by $930,000.

"We're trying to do everything we can, with seven months remaining," Radke told the Trail-Gazette, "to more than replenish the bottom line and get back on track."

Management came up with phase I of the plan; the bondholders may hire an outside management consultant to cover the same bases, what the hospital must do to get back on course financially. Phase II may involve using consultants hired by the bondholders to address productivity.

Radke said, "The 'debt service coverage ratio' is a common requirement for bondholders that gives them some assurance that the organization has enough funds from operations to pay back the annual debt service (principal and interest due). The calculation is focused on 'cash' for the year, so once the accrual-based financials are adjusted to cash, the threshold in our case is $750,000. In other words, if we lose more than $750,000 at year end, we would violate the bond threshold that is predetermined. If we lose less than $750,000, the bondholders would be okay with our financial position.

"The second ratio the bondholders look at is 'days cash on hand.' Page 8 of the financial report summarizes this ratio and graph. Bondholders require 60 days cash on hand and EPMC is running at 108 and, at the end of 2012, the ratio was 152.

"This year, EPMC prepared a 'break-even budget,' meaning we would only have $250,000 left over at the end of the year, which is .2-percent Total Margin. The reason for the small bottom line is because the board wanted management to reduce prices in the operating room to be more competitive with the hospitals down valley. This is part of a strategic plan to make EPMC more competitive on prices — more specifically, to help bring our prices down to a level no higher than 10-percent above the hospitals down valley. Many patients have stated that if EPMC was within 10 percent of other hospitals, it would not be worth the extra effort to drive down valley to get the lower price," Radke said.

As for any concerns the hospital may not remain independent, if the debt service coverage ratio exceeds the $750,000 limit, Radke emphasized, "This hospital district is owned by the district and the taxpayers in the district."